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Bank of Ireland Mortgage Bank on Tuesday became the first bailed-out Irish lender to sell a covered bond in more than two years, the latest sign that banks based in the eurozone's weakest economies are starting to regain access to debt markets.

The bank – considered to be the strongest of the six Irish lenders bailed out after the country's property bubble burst in 2007 – sold €1bn ($1.27bn) worth of bonds that mature in three years time.

Irish Minister of Finance Michael Noonan said: "Today is an important milestone on the path to full independence for our banks. I understand that 98% of the interest in these bonds came from foreign investors. This issuance is further evidence of the strengthening and normalisation of our banking system."

Noonan said the deal was close to two and a half times oversubscribed by investors.

In bailing out its banking system, the Irish government was forced to request aid of its own. In late 2010, Ireland struck a €67.5bn bailout deal with the European Union and International Monetary Fund.

The last Irish bank to sell a benchmark-size covered bond was EBS Mortgage Finance in November 2009, according to ING Bank data. Covered bonds are considered among the safest debt because they are secured against a pool of highly rated assets, typically residential mortgages or public loans.

Benchmark bonds are typically at least €500m in size. Anglo Irish Bank sold a sub-benchmark covered bond in September 2010, Dealogic said.

Bank of Ireland's covered bond follows a senior unsecured deal from Portugal's Banco Espirito Santo last month, highlighting the improving funding conditions for banks in the eurozone's so-called periphery. It comes as Ireland's borrowing costs continue to tumble, with the yield on Irish government bonds maturing 2020 falling by more than a third this year, Tradeweb data shows.

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Heiko Langer, covered bond analyst at BNP Paribas, said: "The interest in peripheral paper for both covered and senior has increased in recent months, so it's not the biggest surprise that this bond is coming now."

Banks and other financial institutions selling covered bonds in euros have raised about $145bn so far this year, about half of what was issued at this stage in 2011, according to Dealogic data. This has created an imbalance between supply and demand and whetted appetite for the kind of returns that deals from Europe's riskiest banks can offer.

Langer said: "The fundamental picture is not really worsening anymore but nor are there strong signs of a turnaround at the moment; it's the strong support from the technical side that enables such a transaction."

Another supportive element of the Bank of Ireland deal is the relatively positive performance of the Irish housing market in recent months, said Maureen Schuller, covered bond strategist at ING Bank.

Citigroup Inc., Morgan Stanley, Nomura, Royal Bank of Scotland Group and UBS are the banks running Tuesday's sale.

The bond is expected to rate Baa3 by Moody's Investors Service – one notch above junk – and A (low) by DBRS.